Pensions Everywhere Are Being Whittled/Bargained Away To Protect the Banksters - And This Is NOT A National Emergency? Like The Banksters' Bonuses? (This Is Not A Tease!)

[BREAKING NEWS:

Have you seen the new Rmoney TV commercials? According to him, Obama sent ALL THAT STIMULUS money (the way-too-small-to-do-any-good-and-mainly-weighted-to-business-tax-cuts figure that the Rethugs finally agreed to) abroad - and to Solyndra and many other boondoggles, and that's why the economy never recovered. Or something.

So. It's ON!]

Pensions To Be Slashed By Fake Losses On Mortgage Bonds

July 23, 2012

Neil Garfield

. . .

Many of the most conservative, pro-business people who think they escaped the travesty of the mortgage scam and meltdown are in for a big surprise starting this year. Pension funds were the investors. And they lost big. In some cases the fund managers were in bed with the investment bankers who were peddling this crap.

If you read the Wall Street Journal they explain how the already underfunded pension funds (due to accounting tricks that were illegal and then made legal) are now unable to escape the reality admitting the losses being pitched over the fence at them by investment bankers who are rolling in money from bailouts, insurance (that should have paid the pension fund), credit default swaps (that should have paid the pension fund).

Deep in the articles is a description of exactly what is happening in simple math terms. That description applies equally to the intentionally manipulated underwriting standards to assure the loans would fail. If you or I did this, we would be in jail.

Instead Jamie Dimon sits on the Board of the New York Fed. What a country.

Millions of people are thrown out of their homes, cities and counties go bankrupt, most from mythical losses they don't understand.

It all comes from what are called yield spreads, premiums and losses from changes in yield. Under normal protocol investors protect themselves by using various hedge products.

But the investment bankers didn't make the investors the beneficiary of those hedges, they made themselves the beneficiaries instead. Since they were the agents of the investors they should and still can be forced to apply those proceeds, and pay them to the pension funds, which in turn will reduce the amount due under each loan that was funded.

Sources tell me that not only are the pension funds being forced to accept losses on loans they never owned until it was time to foreclose, but that some of the "bets" that went bad are being tacked on as additional fees or losses.

The pension funds are therefore suffering from two huge write-downs - one from the change in accounting rules that allowed them to kick the can down the road (passed 30+ Years ago), and the other from losses that don't actually exist but were convenient for the banks to assert when they asked for bailouts.

Pension funds become underfunded automatically when the interest and dividends they get paid shrink. In order to bring up income they need to invest more. Neither the companies nor the pensioners are doing that so there is a shortfall. So when interest rates go down, someone must invest more money to earn the interest required to pay to the pensioners. Nobody is making that investment.

Example: If interest rates were 6% when the pension funds made commitments to retiring employees and the amount of money promised those retiring employees just happened to be $60,000, the pension fund would need $1 million invested (over simplifying by taking out amortization of principal). If interest rates fall to 3%, then the $1 million fund is only getting $30,000 per year. In order to raise it back up to $60,000 per year, the fund needs $2 million invested at 3% to stay fully funded. Without additional contribution, there is a $1 million shortfall.

Right now interest rates, manipulated as they are have never been lower which means that pension funds are getting less income than they were getting before, and since nobody is putting in more money to cover the difference the pension fund is underfunded.

When pension funds must declare the losses on mortgage bonds they will be far more underfunded than currently appears and the amount received by each pensioner will be slashed. Say thank you to Wall Street for that.

Curious coincidence: This same analysis applies to the Tier 2 yield spread premium grabbed by the investment bank under false pretenses from investors. For purposes of this article you can spell investor as "Pension Fund."

When the fund manager for the pension fund gave the investment banker $1 million in our example above, he was expecting a 6% return on investment.

But in the most unbridled breach of trust ever recorded in Wall Street history, the investment banker instead invested half the money at twice the rate.

So they only funded $500,000 in "mortgage" loans carrying a nominal interest rate of 12%, even though they had received $1 million and they pocketed the other $500,000 as "trading profits."

Anyone with any investment knowledge understands that this was (1) an immediate loss of $500,000 to the investor (Pension Fund) and (2) a probable loss of the other $500,000 or most of it after the obvious market crash this would cause.

Of course the people accepting those 12% loans were extremely poor credit risks and were literally guaranteed to default.

So Wall Street took the other half of the money they stole from the pension fund, unknown to the pension fund manager, and bet against the mortgages that were underwritten.

Instead of making the pension fund the beneficiary of that protection the investment banker made himself the beneficiary of the insurance, hedge or credit default swap.

And instead of informing the pension fund manager of the loss in a report in which the fund manager could detect what was really happening, the banks announced that the BANKS had suffered trillions of dollars in losses that never happened except in the mythical world of "cash equivalent" derivatives.

So if you are looking for the rest of your pension income you were promised, you can find it on Wall Street.